The Wall Street Journal recently did an article on how the soft-drinkbattleground has now turned toward new overseas markets. While once the UnitedStates, Australia, Japan, and Western Europe were the dominant soft-drinkmarkets, the growth has slowed down dramatically, but they are still importantmarkets for Coca-Cola and Pepsi. However, Eastern Europe, Mexico, China, SaudiArabia, and India have become the new "hot spots." Both Coca-Cola and Pepsi areforming joint bottling ventures in these nations and in other areas where theysee growth potential. As we have seen, international marketing can be verycomplex. Many issues have to be resolved before a company can even considerentering uncharted foreign waters. This becomes very evident as one begins tostudy the international cola wars. The domestic cola war between Coca-Cola andPepsi is still raging. However, the two soft-drink giants also recognize thatopportunities for growth in many of the mature markets have slowed. Both Coca-Cola, which sold 10 billion cases of soft-drinks in 1992, and Pepsi now findthemselves asking, "Where will sales of the next 10 billion cases come from?"The answer lies in the developing world, where income levels and appetites forWestern products are at an all time high.

Often, the company that gets into a foreign market first usually dominates thatcountry's market. Coke patriarch Robert Woodruff realized this 50 years ago andunleashed a brilliant ploy to make Coke the early bird in many of the majorforeign markets. At the height of World War II, Woodruff proclaimed thatAwherever American boys were fighting, they'd be able to get a Coke. By the timePepsi tried to make its first international pitch in the 50s, Coke had alreadyestablished its brand name and a powerful distribution network.

In the intervening 40 years, many new markets have emerged. In order to profitfrom these markets, both Coke and Pepsi need to find ways to cut through all ofthe red tape that initially prevents them from conducting business in thesemarkets. This paper seeks to examine these markets and the opportunities androadblocks that lie within each.

In 1972, Pepsi signed an agreement with the Soviet Union which made it the firstWestern product to be sold to consumers in Russia. This was a landmarkagreement and gave Pepsi the first-mover advantage. Presently, Pepsi has 23plants in the former Soviet Union and is the leader in the soft-drink industryin Russia. Pepsi outsells Coca-Cola by 6 to 1 and is seen as a local brand.Also, Pepsi must counter trade its concentrate with Russia's Stolichnaya vodkasince rubles are not tradable on the world market. However, Pepsi has also hadsome problems. There has not been an increase in brand loyalty for Pepsi sinceits advertising blitz in Russia, even though it has produced commercialstailored to the Russian market and has sponsored television concerts. On thepositive side, Pepsi may be leading Coca-Cola due to the big difference in pricebetween the two colas. While Pepsi sells for Rb250 (25 cents), Coca-Cola sellsfor Rb450. For the economy size, Pepsi sells 2 liters for Rb1,300, but Coca-Cola sells 1.5 liters for Rb1,800. Coca-Cola, on the other hand, only moved intoRussia 2 years ago and is manufactured locally in Moscow and St. Petersburgunder a license. Despite investing $85 million in these two bottling plants,they do not perceive Coca-Cola as a premium brand in the Russian market.Moreover, they see it as a "foreign" brand in Russia. Lastly, while Coca-Cola'sbottle and label give it a high-class image, it is unable to capture marketshare.

Romania is the second largest central European market after Poland, and thismakes it a hot battleground for Coca-Cola and Pepsi. When Pepsi established abottling plant in Romania in 1965, it became the first U.S. product produced andsold in the region. Pepsi began producing locally during the communist periodand has recently decided to reorganize and retrain its local staff. Pepsientered into a joint venture with a local firm, Flora and Quadrant, for itsBucharest plant, and has 5 other factories in Romania. Quadrant leases Pepsithe equipment and handles Pepsi's distribution. In addition, Pepsi bought 500Romanian trucks which are also used for distribution in other countries.Moreover, Pepsi produces its bottles locally through an investment in the glassindustry. While the price of Pepsi and Coca-Cola are the same (@15cents/bottle), some consumers drink Pepsi because Pepsi sent Michael Jackson toRomania for a concert. Another reason for drinking Pepsi is that it is slightlysweeter than Coca-Cola and is more suited for the sweet-toothed Romanians.Lastly, some drink Pepsi because, in the past, only top officials were allowedto drink it, but now everyone can. Coca-Cola only began producing locally inNovember 1991, but it is outselling all of its competitors. In 1992, Coca-Colasaw an increase in Romania of sales by 99.2% and outsold Pepsi by 6 to 5. WhilePepsi preferred to buy its equipment from Romania, Coca-Cola preferred to bringequipment into Romania. Also, Coca-Cola brought 2 bottlers to Romania. One isthe Leventis Group, which is privately owned. Coca-Cola has invested almost$25 million into 2 factories. These factories are double the size of thefactory Pepsi has in Bucharest. Moreover, Coca-Cola has a partnership with alocal company, Ci-Co, in Bucharest and Brasov. Ci-Co has planned an aggressivepublicity campaign and has sponsored local sporting and cultural events. Lastly,Romanians drink Coke because it is a powerful western symbol which was onceforbidden.

Both Coca-Cola and Pepsi are trying to have their colas available in as manylocations in Eastern Europe, but at a cost which consumers would be willing topay. The concepts which are becoming more important in Eastern Europe includecolor, product attractiveness visibility, and display quality. In addition,availability (meeting local demand by increasing production locally),acceptability (building brand equity), and afford ability (pricing higher thanlocal brands, but adapting to local conditions) are the key factors for EasternEurope. Both companies hope that their western images and brand products willhelp to boost their sales. Coca-Cola has a universal message and campaign sinceit feels that Eastern Europe is part of the world and should not be treateddifferently. Currently, it is difficult to say who is winning the cola warssince the data from the relatively new market research firms focusses on majorcities. Pepsi had a commanding 4 to 1 lead in 1992 in the former Soviet Union.Without this area, Coca-Cola has a 17% share versus Pepsi's 12% share in thesoft drink industry. While both companies have been in Eastern Europe for manyyears, the main task now is to develop the market.